War has come, and the markets are running scared. Well, sort of. After some initial excitement following the unprovoked U.S.-Israeli war on Iran, the U.S. markets began to reel from the realities of this warfare: skyrocketing oil prices and general geopolitical instability. In addition to general war related uncertainty, President Trump’s continual change in stance between reconciliation and increased aggression has created a yo-yoing effect on the markets overall. When peace is at the forefront, markets soar, when aggression is, markets plummet. In line with this trend, March 31st, the last day of Q1 2026, was the markets best day since May 2025 due to renewed hopes of an imminent peace between the U.S. and Iran. Despite this slight bounce back, however, all indices still posted negative to anemic returns for the quarter. U.S. large cap equities finished the quarter down 4.3 percent and international developed markets were down 1.2 percent. Though less than stellar, U.S. Mid-cap (+2.5 percent), Small-cap (+0.9), and bond (+0.1) markets were all able to eke out positive returns for the quarter. As of March, the rate of inflation is about 2.7 percent.
Despite starting off the year with near record highs, the U.S. stock market has taken repeated beatings for most of Q1, mostly thanks to the ill-advised U.S. “excursion” against Iran. The biggest shock to the markets has been oil-related, with oil prices surging from around $66 a barrel to more than $100 almost overnight. Iran is one of the top ten global oil suppliers, and even more critically, has closed the Strait of Hormuz, through which about 20-34% of all oil products travel. The oil shock has only been exacerbated by continued inflation across all consumer sectors.
The assault has not only put a strain on the global oil supply, it has also had catastrophic impacts on other sectors like our food supply, liquified natural gas (LNG), and semiconductor chips, a critical component of all new tech products. Roughly 30% of global seaborne fertilizer trade passes through the Strait of Hormuz. With its closure, fertilizer shipments have been postponed, prices have ballooned, and farmers are struggling to not only afford but even to find sufficient fertilizer stock to prepare for the coming planting season. This will only lead to lower supply and higher prices for an American populace already experiencing painful consumer prices.
In addition, nearly 20% of all liquified natural gas transits through the Strait and Qatar’s Ras Laffan Industrial City, home to the world’s largest LNG facility, which suffered extensive damage from a March 18 Iranian missile attack. The attack on Ras Laffan did not only impact LNG production. Helium, a by-product of LNG production, is another critical export of the facility. It plays a key role in many industries, most critical among them the manufacturing of semiconductors. Qatar alone produces more than one third of the world’s helium supply, and its plant’s closure will mean shocks in both the LNG and semiconductor markets. The impact to semiconductor chips will reverberate far beyond the tech sector. Today, semiconductor chips are used across the market, from cars and your smart home appliances to children’s toys. Any supply chain issues in microchip production will have far reaching and long-lasting effects on the U.S. and global economies.
All of this is happening even before we account for the real dollar cost of war. To date, U.S. taxpayers have shelled out $1-2 billion a day on “Operation Epic Fury,” the administration’s name for its ill-advised war. This shocking number is likely just the beginning. In the coming weeks, the administration is expected to ask Congress for additional Department of Defense funding, which could be as much as $200 billion. And the human toll will continue to rise. To date, the U.S. has admitted to sustaining 13 casualties, with hundreds more wounded, and Iran’s death toll, both combatant and civilian, is in the thousands.
In less than three months, a year that started off with potential hopes for the U.S. finally getting its inflation problem under control has devolved into an economy teetering on the edge of stagflation. The Federal Reserve, which until recently was expected to continue its easing of interest rates, decided to hold off on further cuts at both its January and February meetings, citing growing inflation, low job growth, and the uncertain economic “implications of developments in the Middle East for the U.S. economy.” As global partners continue to abandon the U.S., it is unlikely that the administration will be able to exit or win this war in a timely manner, and the cost of war, both economic and political, will continue to grow.